Economy

South Africa’s economy at a pivotal point as outlook improves but political, energy risks remain

South Africa’s long-awaited economic reforms have begun to improve the country’s outlook, but the age-old problems of political uncertainty and a failing power system still pose significant risks.

The Economic Reconstruction and Recovery Plan has been a key tenet of President Cyril Ramaphosa’s agenda since he succeeded Jacob Zuma as the country’s leader in 2018. But deep divisions within the ruling African National Congress (ANC) and his own cabinet have made for sluggish progress.

The suite of reforms — focused on energy security, infrastructure development, food security, job creation and the green transition — is designed to create a “sustainable, resilient and inclusive economy,” the government says.

And — some at least — appear to be working. S&P Global Ratings earlier this month affirmed its positive outlook on the country, saying that government measures to stimulate private sector activity could boost growth, and the measures had the potential to ease economic pressures.

“There is some hope in the public finances in South Africa, mainly due to the increase in government revenues as a result of higher commodity exports, and also due to the progress made in reducing debt and debt distress, and to ushering a public deficit,” Aleix Montana, Africa analyst at risk consultancy Verisk Maplecroft, told CNBC last week.

However, political frailties and persistent issues at a state-owned utility continue to pose present economic risks.

Ramaphosa faces a “perfect storm of inflation, electricity cuts and corruption accusations that will continue to deteriorate South Africa’s profile and to pose risk for investments in the country,” Montana said.

A report into an alleged corruption scandal surrounding Ramaphosa is set to be examined by the National Assembly on Dec. 6, just 10 days before the party conference of his ruling ANC (African National Congress).

Energy woes
Though Ramaphosa is expected to secure a second five-year term, Montana said he will have to improve his credibility on economic and anti-corruption reforms in order to continue pushing through his agenda. The economy also remains at risk from persistent disruptions at state-owned companies, such as power utility Eskom.

South Africans have faced rolling blackouts as Eskom — which has long been a thorn in the side of the country’s economy — contends with shortfalls in generation capacity due to equipment failures and diesel shortages.

The company has warned that power outages, known as “load-shedding,” will continue for the next six to 12 months, and recently said it had run out of funds to acquire the diesel needed to run auxiliary power plants that are deployed during periods of peak consumption or emergencies.

Montana said that in order to secure sustained economic growth, the South African government will need to prioritize energy sustainability.

“Energy will require financial assistance from international players, but they will also need to ensure that it doesn’t have a negative impact on South African society,” he said.